RBI has projected a direct impact of the latest pay commission recommendations

April 11, 2016

RBI has projected a direct impact of the latest pay commission recommendations

The implementation of the Seventh Central Pay Commission (CPC) awards can have a significant bearing on the inflation trajectory through both direct and indirect channels, with the housing and transportation sectors projected to see the biggest impact of the potential increase in the spending capacity of government employees.

The Reserve Bank of India has projected a direct impact of the latest pay commission recommendations on headline inflation to be around 150 basis points, while the indirect effects are estimated to be around 40 basis points. While the impact of the pay awards is likely to be seen over a period of two years, as was the experience the last time around, compared to the Sixth CPC awards, though, the central bank forecasts the increase in the housing index to be “more quick and continuous” and the indirect effects to be “smaller”.